There are two schools of thought when it comes to buying your first home.

Wait until you save up enough money for a large down payment and closing costs. This way you get a lower monthly mortgage payment.

Don’t wait: buy your home today, enjoy the personal and financial benefits of homeownership now. Finance as much of the price of the home as the bank will lend you: use very little of your own money.

I subscribe to the first concept.

I believe it’s a fantastic idea to save up the money, and get the lowest monthly payment. Who wants a large monthly mortgage payment? The choice of course is that your struggle is in the years it takes to save up the money. I definitely believe in that idea: you see a real benefit from your years of hard work, sacrifice and saving.

Here’s the problem with that line of thinking: we live in the NY Metro area, one of the highest cost-of-living areas in all the United States. Even if you were to live on the most absurdly frugal budget, work three jobs seven days a week, and save every penny of your money, it could be a long, long while before you save up the considerable monies needed for a “large” down payment and the closing costs.

Start with the closing costs: New York State has among the highest closing costs in the nation. On average, 4.5-5% of the purchase price is money allocated JUST to closing costs.

Now to the “large” down payment: because rates are so low, if you are like most of my clients and you want to see a substantial reduction in your monthly mortgage expense (let’s say, $600 or so) then you’re going to need a LOT of money down. In dollars and cents that means, if my proposed mortgage payment is $3100 a month and I want to pay no more than $2500 a month, I’ll need a whopping $94,900 towards the downpayment! Holy cow!

Even if you could work three jobs, seven days, live super-frugal, and bank every penny, the average family would still need to wait 4 years or more to save up that kind of money (assuming you could put away $30,000 a year).

So, while I love the first concept of waiting/saving, I live in the real world.

It’s the rare individual or family that can manage that strict of a lifestyle to save such money. That’s why I’ve always specialized in low down payment mortgages. Because in the real world of the NY Metro area, we just can’t get that kind of a leg up on housing. Prices go up, interest rates change, etc, etc.

Financing the whole shebang (purchase price and some of the closing costs) seems like a crazy idea when you see the numbers (monthly payment), but realistically it works to your benefit.

The mortgage interest is tax deductible for most homeowners (please consult with your tax professional). Your take home pay increases because you own a home! You don’t have to live a no-frills lifestyle sacrificing for something that seems so far away and unattainable. You can have your home, improve your life both with the real financial benefits and the intangible benefits (pride of ownership, financial awareness) that come with homeownership.

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in
New York State.

Home Buyers in the New York area often present an Offer to purchase a home with a request to include closing costs in the purchase price. In the terminology, we call this a “Seller’s Concession.” Although it’s not a “true” Seller’s concession (see bottom).

Seller’s Concession: this is the process where you present an Offer to buy a home with the request of the Homeowner that the price include some or most of your closing costs. When you sign the contract of sale the price will include the closing cost “concession” and there will appear language in the contract stating, “Seller to pay $XX,XXX of Purchaser’s closing costs.” See limits on Seller’s concessions below.

EXAMPLE: Purchaser and Seller have agreed on a purchase price of $412,000. But the Purchaser needs assistance with closing costs in the amount $20,000. The final price on the contract of sale will be $432,000. “Seller will pay $20,000 of Purchaser’s closing costs at closing” is the language included in the contract of sale. The Purchaser’s Down Payment and financing is based on the higher purchase price, including the Seller’s concession.

Allowable SELLER’S CONCESSIONS
1. FHA financing currently allows for up to a 6% Seller’s concession for closing costs, regardless of how much your down payment is. Minimum down payment for FHA loans is currently 3.5%
2. CONVENTIONAL financing currently allows for up to a 6% Seller’s concession for closing costs with a down payment of 10% or more. If your down payment is less than 10%, a 3% maximum Seller’s concession is allowed.

What’s a TRUE Seller’s Concession?

The true definition of a concession is when a Home owner/Seller decides to pay something out of their own pocket to encourage Buyers to buy their home. For example, in a true Seller’s concession situation, a Homeowner might have their Realtor include in the written Listing Agreement that the Seller will provide a credit at closing in the amount $750 for a new washer/dryer. The idea is for the Seller to spend a little bit of their own money to entice Buyers to buy their home, sooner, rather than later, especially in a competitive market.

Meanwhile, in New York…where closing costs are so high…many Buyers ask Sellers to include the Buyer’s closing costs in the price of the home by increasing the agreed upon price, not by asking the Seller to pay those closing costs out of the Seller’s proceeds. It can be complicated, but, then again, so is life in the Big City!

The New York State Bar Association has a special Rider to be included with the contract of sale acknowledging that all parties have agreed to this increase in the price. This way everything is transparent to a Lender when they process and approve a mortgage loan where the price includes a Seller’s concession.

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in
New York State.

When people think of closing costs typically they think of the fees paid at the closing table. The fact is, closing costs are all fees associated with the purchase (or refinance) of a house. For our purposes in this definition, we’ll concentrate on closing costs associated with purchases in New York.

The bulk of closing costs are indeed paid at the closing table. These include:

• Origination fees and other miscellaneous fees (application, underwriting, document prep, etc.) paid to your mortgage lender
• Flood Certification Fee paid to independent verification of flood zone
• Title charges paid to the title company (including searches and insurance for you and for your mortgage)
• The fee paid to your attorney to represent you (you might pay a retainer fee to your Attorney in advance of the closing)
• Municipal fees paid to record your mortgage and record your deed
• Taxes or transfer fees required to be paid to your state, county, or local municipality
• Escrow deposits to create your escrow accounts for the purpose of paying your annual homeowner’s insurance renewal premiums and property tax bills when due
• Miscellaneous Fees associated with your loan application and/or closing: Title Closer “pickup” fee, Title endorsement fees, Bank Attorney, and etc.

You will pay other fees in advance of closing, too. These include:

• Home Inspection: All Homebuyers should obtain a Home Inspection report from a Certified Engineer or Home Inspection Service. This report will give you advance warning of the condition of the plumbing, heating, electrical, roofing, foundation and other structural and age-related issues for the house you wish to purchase.
• Appraisal Fee: An Appraisal determines the value of the house for the purpose of making a lending decision. Typically the appraisal fee is paid for within 5 days of the Lender sending you a Loan Estimate of Closing Costs. (Lenders are not permitted to incur any fees on your behalf such as an appraisal fee or application fee or an origination fee until 4 days after they have sent a Loan Estimate to you; you must have time to review this document and agree by signing an “Intent To Proceed” form before a fee such as an appraisal fee can be charged to you)
• Application Fee: Many Lenders charge application fees in the beginning of processing a loan application.

Prepare for closing by reading your Closing Disclosure

• First Year Homeowner’s Insurance: When you buy your home you are required to purchase, prior to closing, the first full year of Homeowner’s Insurance for your home. You must present proof of this insurance, including a receipt indicating the insurance premium has been paid in full for one year, prior to closing your mortgage loan. If you are including escrows in your monthly mortgage payment for your insurance and property taxes (required by all Lenders for FHA Insured Mortgage Loans and most Conventional Loans), then your Lender will pay your renewal premium every year after your first year from your escrow account.

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

I was included in a FaceBook thread where a homeowner considered whether to refinance his 30year Fixed rate mortgage into a 15 year fixed rate mortgage, or to find an online calculator that would assist him in creating a prepayment plan.

Here’s his query:
Can anyone recommend a decent mortgage calculator site/app/spreadsheet?
We’re currently on a 30 year/4% fixed. Trying to compare two options:
1) Switch to a 15 year/3.65%.
2) Start paying an additional quarterly payment against principal with the existing mortgage.
I know this isn’t exactly advanced math, but I also feel like someone must have put something together that shows the impact of added payments against principal. Mortgage calculators are great at helping figure out the cost of new mortgages (i.e., option #1 above), but not so good at helping jigger existing mortgages (option #2).
Any help?

Here’s my response:
First check with your tax professional before you consider a day in the near future when you “burn the mortgage!” While it may feel great to someday own your home free of any debt, you might lose out on a valuable (in real dollars) tax deduction. Second, rather than refinance and incur closing costs again, prepaying a 30 year mortgage is easy-peasy! Simply add 4% of your current Principal and Interest monthly for year one of your prepayment plan. In subsequent years, add ANOTHER 4% of each years’ NEW monthly payment. Treat your mortgage like an employee with “4% cost of living raises” each year. If you follow this course you can prepay a 30 year loan in 13 years. Hope that helps!

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

You definitely want to be present at the inspection; budget anywhere from 2 to 5 hours for the inspection. Dress as if you might get dirty; bring a flashlight. You’ll go through the house side by side with your Inspector. After the inspection, your Inspector will discuss with you any major issues you need be aware of to discuss with your Attorney. You’ll get a written report shortly after the inspection day.

Typically your Home Inspection will alert you to problems in five key areas, and these key areas directly relate to the contract of sale in a New York home purchase:

1. Foundation: sound and solid 2. Roof free of leaks 3. Plumbing working and leak-free 4. Heating system sufficient and operating 5. Electrical system sufficient and up to code

If there is a serious problem with any of these five items, typically the Seller has a responsibility under the terms of the contract of sale to repair the problem at their expense, not the Purchaser’s expense. Sometimes a Purchaser will receive a credit at closing to repair one of these items (assuming the home and the defective issue has not compromised the Lender’s appraisal). When the Purchaser receives a credit at closing, the amount of the credit is based upon legitimate estimates for repair and negotiations between the Attorneys representing each party.

Other items you discover are in need of repair/upgrade (i.e. dishwasher not operating properly; air conditioner on second floor inoperable, etc.) can be negotiated for a repair credit or replacement at the Seller’s expense. Again, these negotiations are typically handled by the Attorneys.

It is not as common as you might think that a purchase price is reduced due to repairs from a Home Inspection. Best to consult with your Attorney for more detailed information in this area.

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

It’s tax time and many homeowners receive large tax refund checks. Here’s some advice I’ve put together for you on different ways to use that money.

This article was the first in my series “The Affordable Home.” In the series I seek to focus on the intangible benefits of homeownership by making them, well, tangible. I believe the affordable home is the sensible and proper approach to homeownership; so many new homebuyers today specifically focus on the affordability of the mortgage loan instead of the “HGTV” aspects of a house. I find this attitude refreshing for two reasons.

First, it’s an “old” attitude: in decades past the idea of buying a home revolved around diligent budgeting to save up the down payment and the concept the monthly payment should be affordable.

The features of the house—granite countertops, high end appliances, paved driveways—were minor considerations and certainly did not make for sound decision-making when buying a home. Those features could be added later, if one so desired, and those “old-timers” (I was once one of them) knew that.

Second, during the past decade, during the “Boom” the focus was on something I considered completely nuts: buy a home, an amazing home packed with big rooms, big features, and big monthly payments, at any cost. Affordability be damned. I struggled as a mortgage professional during those years to try to talk sense into people.

Since it’s tax-time, the advertising from folks who want your refund checks are everywhere. There was the TV advertisement: “Just in time for your tax refund we’ve received a new stock of bamboo flooring!”

It occurred to me that this is the time of year when many people, especially homeowners, get large tax refunds and the sharks start circling looking to take a bite out of that refund check. To this I say, “STOP! Take a minute to reflect on what you should do with your money! You worked hard for it, and you bought an affordable home so you could get that refund, don’t throw it away without giving it due consideration.”

Here are my suggestions to spend your tax refund wisely:

1. Consider investing the money for your future. My pal Nick, the owner of the Westside Steakhouse was at one time a stock broker. Here’s his take on wisely using your money:: “Never spend more than you make and save some money every week.” Awesome advice and I believe that fits very handily into my concept of the affordable home. Especially in this day and age of doubt over pensions, we consumers must be smarter and more responsible with our planning for retirement. Follow Nick’s advice and invest your tax refund to begin or supplement your savings plan.

The New York Times “Your Money” section featured a wonderful piece recently about a new vehicle that makes it easier for us to create a sound investment strategy without all the costly bells and whistles. Here’s the link to that article: Financial Advice for People Who Aren’t Rich

I have long advised my clients to consider retaining a Financial Advisor to provide counsel on all things finance-related: investing, budgeting and insurance. You can find a local Financial Advisor in the your area here: National Association of Personal Financial Advisors

2. Create an Emergency Reserve. Take some or all of that refund check and put together your emergency reserves. Park the money somewhere it’s inaccessible by debit card! You’ll need ease of access, but putting it within reach of a debit card is a surefire path to disaster.

3. Pay down debt. This tends to be the long held standard amongst many homeowners I’ve known over the years. I believe this is an admirable activity, but I believe taking your tax refund to pay down debt should be part of a comprehensive plan for debt management. To take a page out of my friend Nick’s finance playbook: don’t spend more than you earn. I advocate tending to your credit use respectfully and as part of your total family budget every month. This way you won’t necessarily have to take your hard won refund check and pay down a credit card balance. Of course, if, during the year you experienced an emergency and needed to access your credit to assist with that emergency, then paying off that debt at tax time is a sound strategy since it’s a one time event.

I’ve found that Consumer Action is the best site on the ‘net for sound advice on all things credit related, including how to obtain lower credit card rates and fees and great counselling on preparing and maintaining a family budget. Find them here: Consumer Action

Another Smart Strategy for The Affordable Home: Take home more money in your paycheck; get a smaller refund at tax time.

I hope my suggestions are useful to you at this exciting time of year. Of course, I also advocate that you really shouldn’t get such a large refund at tax time if you’re a homeowner. I’ve long believed that you should incorporate into your homeowners’ “network of advisors” a great tax professional or CPA. By doing so, you can lean on your tax professional/CPA to advise you on the correct withholding throughout the year to increase your take-home pay, reduce your end of the year tax refund (and prevent having to pay!), and enjoy the benefits of homeownership every month instead of once a year. Here’s the IRS page on how to calculate correct withholding, but I recommend you do this only under the guidance of your tax professional/CPA: IRS Withholding Calculator

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

I’ve debated for many years with various folks, friends and family members over washing the dishes, not that I mind the household chore, rather the expense of hand-washing dishes versus using a dishwasher.

They say that using a newer Energy STAR efficient washing machine is the least expensive way to wash your dishes. But they make a good case for “efficient” hand-washing. A new Energy STAR efficient dishwasher uses 3-5 gallons of water and 1kWh energy.

Efficient hand-washing, where you use separate tubs to soap the dishes and wash them by hand then rinse in a separate tub thereby not running the water the whole time is nearly as efficient with 8 gallons and 1kWh. More efficient than an older dishwasher which can use up to 15 gallons and 2-3 kWh!

Make your home more affordable: either invest in a new Energy STAR efficient dishwasher or get more efficient in the way you wash your dishes by hand.

Wow, 27+ years as a Mortgage Banker!I have seen the occasional short appraisal! I started in November 1989 because I wanted to become a Homeowner so I chose a path which would get me there: Mortgage Professional.

Times were tough back in that market. Interest rates were high and property values had dropped dramatically. The employment picture for many Americans wasn’t very promising. There were a lot of foreclosures and homeowners had a hard time refinancing their mortgages due to lost equity. Sounds very similar to our recent post-meltdown market with the exception of the interest rates (11% in 1989!!!).

I received a valuable part of my education early on in my career as I dealt with purchase transactions where the appraisal came in for less than the purchase price. Buyers, Sellers and their respective Realtors are all “IN IT TO WIN IT” and make the deal happen.

How you see your house!

I carry that education with me to this day when my HomeBuyer clients ask me at application time, “What happens if the appraisal comes in for less than the Purchase Price?” I know many HomeBuyers may think it’s a NO-BRAINER: the Seller will automatically reduce the price. But that is NOT the case right out of the gate. Here’s what I learned all those years ago about appraisals that come in short:

How the Appraiser sees your house

When the bank appraisal comes in for less than the contract price

there are FOUR ways to proceed with the transaction.

The Purchaser comes up with the difference in cash. If the appraisal is less than the Purchase price, the Seller basically assumes the Purchaser wishes to buy the house according to the terms of the contract, including the agreed upon Purchase Price. Therefore, the Seller assumes the Purchaser will come up with the cash necessary to complete the transaction.

The Purchaser and the Seller meet in the middle. The Purchaser comes up with some cash but the Seller also agrees to reduce the price enough to meet the Purchaser somewhere “in the middle.” Both sides want to complete the transaction and so they work it out. This is compromise at its best.

The Seller reduces the Purchase Price to equal the Appraised value. This is the least likely scenario, but not an impossible one. Sellers often want to complete the purchase transaction on the original terms of the contract, including the price. But a determined Purchaser working with a great Realtor, by digging in and working hard to negotiate can often make it happen.

Nothing happens and the deal is cancelled. The Purchaser either cannot or will not come up with the extra cash and the Seller refuses to reduce the price completely or even a little bit to meet the Purchaser. In this case the transaction is cancelled, the Down Payment is returned, and everyone goes home unhappy. The Purchaser has to begin all over again and the Seller has to put the house on the market and try to find a new Purchaser.

In the end, the motivations of all parties to make the deal happen and close the transaction rule the day. Those motivations drive everyone to find a solution and get the deal closed. Or not.

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

There is a deliberate process to making an offer. I include step-by-step instructions on how this works. My instructions will help you get the house you want, even if you are dealing with a difficult Seller, a Bank-Owned property, or if you are competing against another Buyer for the same house.

I have seen these methods work many times over with my clients over my almost 28 year career as a mortgage professional.

My basic methodology here is one of making your Offer a very formal proceeding. When you take these formal steps you are demonstrating to everyone involved in the transaction just how serious a Buyer you are. You will set yourself apart from the crowd. I have seen this method work time and time again for my Homebuyer clients.

5 Steps To Making An Offer:

STEP 1. Always make offers in writing. Yes, it is absolutely true that offers can be presented verbally. Don’t do that. Put your offer in writing every time. Even if you are in a situation where you and the Seller are sending counter offers back and forth, every new offer should be in writing.

When your offer is in writing, you come across to the Seller as serious. Think about it, anyone who is taking the time to go in to the real estate office and sign the form is serious about buying a home.

Include the following into your written offer:

* The amount of your “earnest money deposit” or “good faith deposit.” That is the amount of money you’ll put into escrow with the Seller’s attorney upon signing the contract of sale.

* The amount of your mortgage financing. Of course you’ll back this up with a prequalification letter, but you must include the amount of your mortgage in the offer.

* Items included in the sale. If the appliances and the chandelier in the dining room are to be included in the sale, make sure they are written in to the offer. This shows the homeowner you were paying attention when you inspected the home and asked, “What’s included in the sale?”

* Attorney Information: the name and complete contact information for your attorney.

* Anticipated contract date. Always make this date within 48 hours of your offer. Present the assumption the Seller will accept your offer and immediately forward a contract to your attorney.

Again, this demonstrates to the Seller how serious you are. You are in effect saying, “I am so serious about buying this home I want to sign the contract immediately!” Imagine how many other Buyers out there are delaying things like signing the contract (and potentially changing their minds).

* Anticipated closing date. This is an interesting point for the offer. I always recommend putting the closing date for an offer within thirty days of the contract. The fact is most closings take place within 60 days of contract, and your attorney will most likely change that date in the contract, but if your offer says “thirty days,” once again you demonstrate how serious you are about buying the home.

STEP 2. Prequalification letter. Your mortgage professional should be available to fax a prequalification letter within hours of your making your offer; even on Saturdays or Thursday evenings.

STEP 3. Mortgage pro phone call. I think a phone call from your mortgage professional to the Listing Agent is a home run. When the Listing Agent hears from the mortgage person directly how eminently qualified you are, imagine how that raises your profile in the mind of the agent and the Seller!

STEP 4. Home Inspection ready to go. When you sign your offer, be sure to tell your Realtor that you’ve already spoken with your Home Inspector and you can have the inspection done tomorrow. Whoa, that’s really the mark of a serious Buyer!

STEP 5. Get ready with your counteroffer. If you offered less than the asking price, then you need be prepared with your counter offer if the Seller either declines or counters your opening offer. All of the steps above should be repeated with the new price replacing the original number. Organization and swift responses rule the day! Oh, you may not want to counter offer. That’s okay, too.

Unlock the door to homeownership with this method

Do you have questions? Click on ASK TREVORand I’ll respond to any and all inquiries, even if you’re not buying a home in New York State.

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